Neoclasical Theory of Exogenous Growth (Solow-Swan Model)

Abstract

The fi rst question you ask at the beginning of this research and, furthermore, will try to give an adequate answer to this is whether an economy is possible to generate positive rates of economic growth only through continuous investment in physical capital. If we analyze the empirical research dating from the period 1960-2000, will see that the average annual growth rate for 112 countries was around 1.8 per cent and the rate of gross investment, 16 percent. Analyses show that the average growth rate for African countries was only 0.6 percent, and gross investment rate of only 10 percent. On the other hand, research for the countries of East Asia known as the “Asian tigers” show rate of economic growth of 4.9 percent, and gross investment rate of 25 percent. There are positive relationship between investment and economic growth. But more subtle analysis of the relationship between investment and economic growth show that, for 23 OECD countries, average growth rate was 2.7 percent lower than the rate of growth of the Asian tigers, where the rate of investment was 24 percent, almost identical to that the Asian tigers. We can conclude that it is not suffi cient the fact that investment increases the rate of growth, to respond to these trends need to do more detailed analysis of the reasons why approximately the same rate of investment Asian tigers notice higher growth rates compared to the OECD countries.